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Saturday, December 10, 2011

Ten myths about Cameron’s EU veto

The EU veto that Cameron pulled in the early hours of Thursday morning has been widely misunderstood on all sides. Here are the ten most common myths: 1. Because of Cameron’s veto, Britain lost a seat at the negotiating table. Not true. The UK was never itself going to take part in the Merkozy pact (and potentially be subject to EU sanctions), and therefore not in the monthly, parallel EU meetings that will begin in January, either. Even if he had approved the Treaty changes, Cameron still would not have had a seat at the table. Wider political challenges aside, the veto didn’t change anything structurally in terms of UK influence.

2. Cameron’s veto created a two-tier Europe. A two-tier (or, rather, multi-tier) Europe was a consequence of the formation of the euro, which would inevitably force its members closer together. Cameron’s veto was a reflection of a multi-tier Europe, not the cause of it.

3. The UK is now completely isolated. Define isolated. Yes, Cameron expended a lot of political capital and frustrated many EU leaders — and he could have done some things differently, including sequenced his demands in a smarter way. But as Fraser pointed out earlier, the UK remains an open economy plugged into the global network. And given the state of the euro Britain is — as Terry Smith of brokerage firm Tullett Prebon told the BBC — ‘as isolated as someone left on the dock in Southampton as the Titanic sailed away.’

4. Cameron used his veto to protect a ‘tiny part of our economy’. This claim slipped into the BBC’s Stephanie Flanders’ reports on Friday and is incorrect. Financial services accounted for a £35bn trade surplus last year — one of the few sectors that generated a surplus, as well almost 2 million jobs and it contributed £54bn in taxes.

5. Merkel got what she wanted. This claim was also part of most broadcast reports and is equally untrue. Merkel got something, but, as Spiegel noted, she also ‘paid a high cost’ — compromising on ECJ budget powers and private sector involvement in future bailouts, for example — without achieving a lasting solution to the crisis. As yesterday’s FT Deutschland put it, ‘The next rescue summit is guaranteed to come.’ 6. The UK is alone in expressing reservations about Merkozy’s deal. Cameron was clearly all alone on the veto, but others are far from enthusiastic about what’s on offer. Part of the deal hit the wall in the Finnish Parliament, while the Swedish opposition parties are opposed to Sweden signing up, meaning that the deal may not make it through the Riksdag. Håkan Juholt, the leader of the Social Democrats, said, ‘The Swedish people rejected the single currency in a referendum and we have to respect that. We have no intention of becoming members through the backdoor.’ 7. The UK asked for‘special exemptions’. Whether or not he asked for the right things, Cameron did not demand UK-specific ‘opt outs’ from regulations, but for the reinstatement of general vetoes over transfers of power to the EU’s financial supervisors and a guarantee that business and trading activities won’t be pushed inside the eurozone through regulation. The closest he got to an opt-out was a proposal to exempt certain types of businesses that only operate in one country from certain aspects of EU regulation. 8. Cameron went to Europe to protect greedy bankers. One of his demands was to be able to impose stricter rules on banks (capital requirements) in order to avoid future taxpayer-backed bailouts of bankers.

9. The 17+ can easily use the EU institutions to enforce their decisions, making Cameron’s veto pointless. ECJ case law clearly states that an ad hoc group of countries can use the EU institutions but only subject to an agreement by all EU member states sharing and paying for the institutions. This means that the UK still has a veto. Some EU leaders are now set on manipulating EU law to get around the UK veto (we’ve been here before). It’s not easy, but they may succeed. However, to criticise Cameron for this is to blame someone for losing in poker because the rules changed mid-way through the game.

To be fair, there have also been some misconceptions among those who would defend Cameron: 10. The veto was about blocking the financial transaction tax and specific financial regulations. Not quite. Cameron already had a separate veto over the FTT, and the Treaty changes were merely about tightening the eurozone’s budget rules (from which the UK already has an opt-out). The veto was always a lever to push for safeguards against the UK being sidelined on key economic issues (i.e. financial regulation) in future as the eurozone integrated further. It was not a protective measure in itself.

So leaving misconceptions and domestic politics aside, did Cameron ‘trip over his own red line’ by spending a veto without actually getting any specific safeguards in return? There is a risk. But the truth is that it all depends on what happens next. As dramatic as Cameron’s veto may seem now, I suspect it is merely one of many acts.

6 comments:

Anonymous
said...

YOur "10 Myths" have a whiff of desperation. You are missing the big picture. Open Europe has been pushing Cameron/Conservatives for just such a posture, and now you got the logical outcome of that posture. And yes, UK is in fact now isolated and no longer at the table, that is the reaction all around Europe, indeed all around the world. Time to rethink your precepts.

See this: "The EU should kick Britain out." Here's the pull quote: "From leading Europe into the disaster of the Iraq war to killing off financial reform, the UK has been more destructive than Greece." http://www.guardian.co.uk/​commentisfree/2011/aug/13/​eu-kick-britain-out

I have a question, I was wondering whether you could answer it. In your 'Continental Shift Report', you say:

'The vast majority of EU financial services regulation is based on the EU Treaties’ single market articles, where Qualified Majority Voting (QMV) and co- decision with the European Parliament applies, meaning that MEPs and national ministers must both agree before a proposal can become law.'

When was QMV established as the form of decision-making in the single market articles? Was this established in the SEA? In Maastricht? In Lisbon?

As I understand it he demanded (or at the very least introduced very late) that third country parties doing business in The City who didn't do business in the Eurozone be exempt regulation. That blows the single market to bits. It was never to be accepted.

Many thanks Chris M for your comment. You have a point, which is why we're saying that this demand was the closest he came to asking for an 'opt out'. It wasn't exemption for businesses operating outside the eurozone though, but those only operating in one country. You could argue that such an exemption would be consistent with the subsidiarity principle on grounds that it has no cross-border relevance (unless the fund is of systemic importance whcih few are).

"Merkel got what she wanted. This claim was also part of most broadcast reports and is equally untrue"

Well, I think she got everything she wanted with the stability pact. I think you make a reasonable skeptical point though, seeing we can't read her mind.

6. "The UK is alone in expressing reservations about Merkozy’s deal".

I'd have certainly liked more on the terms, but I didn't see anyone say this. Just that, as you say, that the veto was alone. Remember too Cameron made virtualy nothing about the terms of the deal.

"Some EU leaders are now set on manipulating EU law to get around the UK veto (we’ve been here before). It’s not easy, but they may succeed. However, to criticise Cameron for this is to blame someone for losing in poker because the rules changed mid-way through the game"

No rules changed mid game. Cameron should have been aware of all that. He might be prepared to block it all, so maybe he did know what he was doing.

On Merkel, no she didn't, as the rules still aren't automatic and the final say still doesn't rest with the ECB (a significant set-back for her vision of Ordnungspolitik). She also gave in on PSI in the ESM, which could trigger moral hazard and therefore undermine her 'stability union'

On 6) Watch this space and check out our press summary from today: http://www.openeurope.org.uk/media-centre/summary.aspx?id=3590

On Cameron, fair point, which goes back to our comments that he clearly could have done things differently (though, of course, there is a wider discussion here about what Europe has come to if we're to assume that the rule of law won't ever be respected)